National CineMedia, Inc.
National CineMedia, Inc. (Form: 10-Q, Received: 11/09/2015 17:54:00)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2015

Commission file number: 001-33296

 

NATIONAL CINEMEDIA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-5665602

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

9110 East Nichols Avenue, Suite 200

Centennial, Colorado

 

80112-3405

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (303) 792-3600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

 

Accelerated filer

o

 

 

 

 

 

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   o     No   x

As of November 3, 2015, 61,496,385 shares of the registrant’s common stock (including unvested restricted shares), par value of $0.01 per share, were outstanding.

 

 

 


TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

PART I

 

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

Unaudited Condensed Consolidated Balance Sheets

 

3

 

Unaudited Condensed Consolidated Statements of Income

 

4

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

 

5

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

6

 

Unaudited Condensed Consolidated Statements of Equity/(Deficit)

 

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

38

Item 4.

Controls and Procedures

 

38

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

38

Item 1A.

Risk Factors

 

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 3.

Defaults Upon Senior Securities

 

39

Item 4.

Mine Safety Disclosures

 

39

Item 5.

Other Information

 

39

Item 6.

Exhibits

 

39

 

 

 

 

Signatures

 

40

 

 

 


PART I

Item 1. Financial Statements

NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

(UNAUDITED)

 

 

 

October 1,

2015

 

 

January 1,

2015

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22.7

 

 

$

13.4

 

Short-term marketable securities

 

 

13.5

 

 

 

21.7

 

Receivables, net of allowance of $5.1 and $4.3, respectively

 

 

124.0

 

 

 

116.5

 

Prepaid expenses

 

 

3.1

 

 

 

3.6

 

Deferred tax assets

 

 

3.9

 

 

 

6.9

 

Income tax receivable

 

 

5.8

 

 

 

6.1

 

Current portion of notes receivable - founding members

 

 

4.2

 

 

 

4.2

 

Other current assets

 

 

1.0

 

 

 

 

Total current assets

 

 

178.2

 

 

 

172.4

 

NON-CURRENT ASSETS:

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $71.1 and $72.9,

   respectively

 

 

22.9

 

 

 

22.4

 

Intangible assets, net of accumulated amortization of $86.0 and $69.3, respectively

 

 

503.4

 

 

 

488.6

 

Deferred tax assets

 

 

222.4

 

 

 

227.3

 

Debt issuance costs, net of accumulated amortization of $19.7 and $17.8, respectively

 

 

13.6

 

 

 

15.5

 

Long-term notes receivable, net of current portion - founding members

 

 

16.6

 

 

 

16.6

 

Other investments

 

 

4.3

 

 

 

2.5

 

Long-term marketable securities

 

 

44.3

 

 

 

45.5

 

Other assets

 

 

0.5

 

 

 

0.6

 

Total non-current assets

 

 

828.0

 

 

 

819.0

 

TOTAL ASSETS

 

$

1,006.2

 

 

$

991.4

 

LIABILITIES AND EQUITY/(DEFICIT)

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Amounts due to founding members

 

$

27.3

 

 

$

34.9

 

Payable to founding members under tax receivable agreement

 

 

28.0

 

 

 

19.6

 

Accrued expenses

 

 

22.1

 

 

 

19.2

 

Accrued payroll and related expenses

 

 

13.0

 

 

 

10.7

 

Accounts payable

 

 

13.1

 

 

 

13.3

 

Deferred revenue

 

 

8.7

 

 

 

8.5

 

Deferred tax liability

 

 

0.6

 

 

 

1.0

 

Total current liabilities

 

 

112.8

 

 

 

107.2

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Long-term debt

 

 

936.0

 

 

 

892.0

 

Deferred tax liability

 

 

50.0

 

 

 

54.2

 

Payable to founding members under tax receivable agreement

 

 

135.7

 

 

 

146.7

 

Total non-current liabilities

 

 

1,121.7

 

 

 

1,092.9

 

Total liabilities

 

 

1,234.5

 

 

 

1,200.1

 

COMMITMENTS AND CONTINGENCIES (NOTE 6)

 

 

 

 

 

 

 

 

EQUITY/(DEFICIT):

 

 

 

 

 

 

 

 

NCM, Inc. Stockholders’ Equity/(Deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and

   outstanding, respectively

 

 

 

 

 

 

Common stock, $0.01 par value; 175,000,000 shares authorized, 59,018,867 and

   58,750,926 issued and outstanding, respectively

 

 

0.6

 

 

 

0.6

 

Additional paid in capital/(deficit)

 

 

(244.9

)

 

 

(261.0

)

Retained earnings (distributions in excess of earnings)

 

 

(179.1

)

 

 

(147.4

)

Accumulated other comprehensive income/(loss)

 

 

 

 

 

(0.4

)

Total NCM, Inc. stockholders’ equity/(deficit)

 

 

(423.4

)

 

 

(408.2

)

Noncontrolling interests

 

 

195.1

 

 

 

199.5

 

Total equity/(deficit)

 

 

(228.3

)

 

 

(208.7

)

TOTAL LIABILITIES AND EQUITY/DEFICIT

 

$

1,006.2

 

 

$

991.4

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

3


NATIONAL CINEMEDIA , INC. AND SUBSIDIAR Y

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except share and per share data)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1,

2015

 

 

September 25,

2014

 

 

October 1,

2015

 

 

September 25,

2014

 

REVENUE (including revenue from founding

   members of  $6.5, $9.1, $23.2 and $28.4, respectively)

 

$

111.7

 

 

$

100.8

 

 

$

310.1

 

 

$

270.9

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising operating costs

 

 

7.8

 

 

 

6.5

 

 

 

21.9

 

 

 

18.1

 

Network costs

 

 

4.3

 

 

 

4.4

 

 

 

13.0

 

 

 

13.4

 

Theatre access fees—founding members

 

 

17.6

 

 

 

17.0

 

 

 

54.0

 

 

 

52.3

 

Selling and marketing costs

 

 

16.9

 

 

 

14.7

 

 

 

49.9

 

 

 

43.8

 

Merger termination fee and related merger costs

 

 

-

 

 

 

2.0

 

 

 

34.3

 

 

 

3.7

 

Administrative and other costs

 

 

9.3

 

 

 

6.9

 

 

 

26.3

 

 

 

21.6

 

Depreciation and amortization

 

 

8.0

 

 

 

8.6

 

 

 

24.2

 

 

 

24.2

 

Total

 

 

63.9

 

 

 

60.1

 

 

 

223.6

 

 

 

177.1

 

OPERATING INCOME

 

 

47.8

 

 

 

40.7

 

 

 

86.5

 

 

 

93.8

 

NON-OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on borrowings

 

 

13.0

 

 

 

12.7

 

 

 

39.2

 

 

 

38.8

 

Interest income

 

 

(0.5

)

 

 

(0.3

)

 

 

(1.4

)

 

 

(1.2

)

Accretion of interest on the discounted payable to

   founding members under tax receivable agreement

 

 

3.5

 

 

 

3.5

 

 

 

10.6

 

 

 

10.8

 

Amortization of terminated derivatives

 

 

-

 

 

 

2.6

 

 

 

1.6

 

 

 

7.6

 

Other non-operating expense

 

 

0.1

 

 

 

0.7

 

 

 

0.2

 

 

 

0.9

 

Total

 

 

16.1

 

 

 

19.2

 

 

 

50.2

 

 

 

56.9

 

INCOME BEFORE INCOME TAXES

 

 

31.7

 

 

 

21.5

 

 

 

36.3

 

 

 

36.9

 

Income tax expense

 

 

4.8

 

 

 

2.1

 

 

 

6.3

 

 

 

4.2

 

CONSOLIDATED NET INCOME

 

 

26.9

 

 

 

19.4

 

 

 

30.0

 

 

 

32.7

 

Less:  Net income attributable to noncontrolling

   interests

 

 

19.2

 

 

 

14.6

 

 

 

21.2

 

 

 

27.4

 

NET INCOME ATTRIBUTABLE TO NCM, INC.

 

$

7.7

 

 

$

4.8

 

 

$

8.8

 

 

$

5.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER NCM, INC. COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.08

 

 

$

0.15

 

 

$

0.09

 

Diluted

 

$

0.13

 

 

$

0.08

 

 

$

0.15

 

 

$

0.09

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

59,014,887

 

 

 

58,744,395

 

 

 

58,959,381

 

 

 

58,695,073

 

Diluted

 

 

59,625,214

 

 

 

59,043,769

 

 

 

59,452,580

 

 

 

58,987,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.22

 

 

$

0.22

 

 

$

0.66

 

 

$

1.16

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

4


NATIONAL CINEMEDIA, INC. AND SUBSIDIAR Y

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1,

2015

 

 

September 25,

2014

 

 

October 1,

2015

 

 

September 25,

2014

 

CONSOLIDATED NET INCOME, NET OF TAX OF

   $4.8, $2.1, 6.3 AND $4.2, RESPECTIVELY

 

$

26.9

 

 

$

19.4

 

 

$

30.0

 

 

$

32.7

 

OTHER COMPREHENSIVE INCOME, NET OF TAX:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of terminated derivatives, net of tax of

   $0.0, $0.5, $0.3 and $1.4, respectively

 

 

 

 

 

2.1

 

 

 

1.3

 

 

 

6.2

 

CONSOLIDATED COMPREHENSIVE INCOME

 

 

26.9

 

 

 

21.5

 

 

 

31.3

 

 

 

38.9

 

Less: Comprehensive income attributable to

   noncontrolling interests

 

 

19.2

 

 

 

16.0

 

 

 

22.1

 

 

 

31.5

 

COMPREHENSIVE   INCOME   ATTRIBUTABLE

   TO   NCM,   INC.

 

$

7.7

 

 

$

5.5

 

 

$

9.2

 

 

$

7.4

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

5


NATIONAL CINEMEDIA, INC. AND SUBSIDIAR Y

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(UNAUDITED)

 

 

 

Nine Months Ended

 

 

 

October 1,

2015

 

 

September 25,

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Consolidated net income

 

$

30.0

 

 

$

32.7

 

Adjustments to reconcile consolidated net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Deferred income tax expense

 

 

5.7

 

 

 

12.2

 

Depreciation and amortization

 

 

24.2

 

 

 

24.2

 

Non-cash share-based compensation

 

 

9.7

 

 

 

5.1

 

Excess tax benefit from share-based compensation

 

 

(0.1

)

 

 

0.2

 

Accretion of interest on the discounted payable to founding members

   under tax receivable agreement

 

 

10.6

 

 

 

10.8

 

Amortization of terminated derivatives

 

 

1.6

 

 

 

7.6

 

Amortization of debt issuance costs

 

 

1.9

 

 

 

2.1

 

Other

 

 

0.7

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

(9.2

)

 

 

23.2

 

Accounts payable and accrued expenses

 

 

3.9

 

 

 

(6.1

)

Amounts due to founding members

 

 

0.5

 

 

 

2.6

 

Payment to founding members under tax receivable agreement

 

 

(17.2

)

 

 

(25.1

)

Deferred revenue

 

 

0.2

 

 

 

1.6

 

Income taxes and other

 

 

(0.6

)

 

 

(4.2

)

Net cash provided by operating activities

 

 

61.9

 

 

 

86.9

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8.0

)

 

 

(6.9

)

Purchases of marketable securities

 

 

(57.6

)

 

 

(99.1

)

Proceeds from sale and maturities of marketable securities

 

 

66.5

 

 

 

110.7

 

Purchases of intangible assets from network affiliates

 

 

(2.0

)

 

 

(3.0

)

Net cash (used in) provided by investing activities

 

 

(1.1

)

 

 

1.7

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of dividends

 

 

(39.4

)

 

 

(68.1

)

Proceeds from borrowings

 

 

166.0

 

 

 

92.0

 

Repayments of borrowings

 

 

(122.0

)

 

 

(87.0

)

Payment of debt issuance costs

 

 

 

 

 

(0.7

)

Founding member integration payments

 

 

1.9

 

 

 

1.5

 

Distributions to founding members

 

 

(58.0

)

 

 

(55.7

)

Excess tax benefit from share-based compensation

 

 

0.1

 

 

 

(0.2

)

Proceeds from stock option exercises

 

 

1.2

 

 

 

0.8

 

Repurchase of stock for restricted stock tax withholding

 

 

(1.3

)

 

 

(1.3

)

Net cash used in financing activities

 

 

(51.5

)

 

 

(118.7

)

CHANGE IN CASH AND CASH EQUIVALENTS

 

 

9.3

 

 

 

(30.1

)

Cash and cash equivalents at beginning of period

 

 

13.4

 

 

 

54.7

 

Cash and cash equivalents at end of period

 

$

22.7

 

 

$

24.6

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

6


NATIONAL CINEMEDIA, INC. AND SUBSIDIAR Y

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In millions)

(UNAUDITED)

 

 

 

Nine Months Ended

 

 

 

October 1,

2015

 

 

September 25,

2014

 

Supplemental disclosure of non-cash financing and investing activity:

 

 

 

 

 

 

 

 

Purchase of an intangible asset with NCM LLC equity

 

$

31.4

 

 

$

16.4

 

Accrued distributions to founding members

 

$

24.7

 

 

$

21.8

 

Increase (decrease) in dividends not requiring cash in the period

 

$

1.1

 

 

$

(0.5

)

Write-off of property and equipment included in accrued expenses

 

$

(0.3

)

 

$

(0.4

)

Increase in cost and equity method investments

 

$

1.7

 

 

$

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

35.2

 

 

$

34.6

 

Payments (refunds) for income taxes, net

 

$

0.2

 

 

$

(6.4

)

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

7


NATIONAL CINEMEDIA, INC. AND SUBSIDIAR Y

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY/(DEFICIT)

(In millions, except share and per share data)

(UNAUDITED)

 

 

 

 

 

 

 

NCM, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid in

 

 

(Distribution

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Capital

 

 

in Excess of

 

 

Comprehensive

 

 

Noncontrolling

 

 

 

Consolidated

 

 

Shares

 

 

Amount

 

 

(Deficit)

 

 

Earnings)

 

 

Loss

 

 

Interest

 

Balance—January 1, 2015

 

$

(208.7

)

 

 

58,750,926

 

 

$

0.6

 

 

$

(261.0

)

 

$

(147.4

)

 

$

(0.4

)

 

$

199.5

 

Distributions to founding members

 

 

(49.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49.8

)

NCM LLC equity issued for purchase

   of intangible asset

 

 

31.4

 

 

 

 

 

 

 

 

 

14.1

 

 

 

 

 

 

 

 

 

17.3

 

Income tax and other impacts of NCM

   LLC ownership changes

 

 

(1.7

)

 

 

 

 

 

 

 

 

(4.6

)

 

 

 

 

 

 

 

 

2.9

 

Comprehensive income, net of tax

 

 

31.3

 

 

 

 

 

 

 

 

 

 

 

 

8.8

 

 

 

0.4

 

 

 

22.1

 

Share-based compensation issued

 

 

(0.1

)

 

 

267,941

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

 

 

 

 

Share-based compensation

   expense/capitalized

 

 

9.9

 

 

 

 

 

 

 

 

 

6.8

 

 

 

 

 

 

 

 

 

3.1

 

Excess tax benefit from share-based

   compensation

 

 

(0.1

)

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

 

 

 

 

Cash dividends declared $0.66 per

   share

 

 

(40.5

)

 

 

 

 

 

 

 

 

 

 

 

(40.5

)

 

 

 

 

 

 

Balance—October 1, 2015

 

$

(228.3

)

 

 

59,018,867

 

 

$

0.6

 

 

$

(244.9

)

 

$

(179.1

)

 

$

(0.0

)

 

$

195.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 26, 2013

 

$

(146.1

)

 

 

58,519,137

 

 

$

0.6

 

 

$

(271.7

)

 

$

(80.0

)

 

$

(3.2

)

 

$

208.2

 

Distributions to founding members

 

 

(46.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46.5

)

NCM LLC equity returned for purchase

   of intangible asset

 

 

16.4

 

 

 

 

 

 

 

 

 

7.5

 

 

 

 

 

 

 

 

 

8.9

 

Income tax and other impacts of NCM

   LLC ownership changes

 

 

(0.3

)

 

 

 

 

 

 

 

 

(2.0

)

 

 

 

 

 

 

 

 

1.7

 

Comprehensive income, net of tax

 

 

38.9

 

 

 

 

 

 

 

 

 

 

 

 

5.3

 

 

 

2.1

 

 

 

31.5

 

Share-based compensation issued

 

 

(0.5

)

 

 

227,851

 

 

 

 

 

 

(0.5

)

 

 

 

 

 

 

 

 

 

Share-based compensation

   expense/capitalized

 

 

5.2

 

 

 

 

 

 

 

 

 

3.5

 

 

 

 

 

 

 

 

 

1.7

 

Excess tax benefit from share-based

   compensation

 

 

0.2

 

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 

 

Cash dividends declared $1.16 per

   share

 

 

(67.5

)

 

 

 

 

 

 

 

 

 

 

 

(67.5

)

 

 

 

 

 

 

Balance—September 25, 2014

 

$

(200.2

)

 

 

58,746,988

 

 

$

0.6

 

 

$

(263.0

)

 

$

(142.2

)

 

$

(1.1

)

 

$

205.5

 

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

 

8


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. THE COMPANY

Description of Business

National CineMedia, Inc. (“NCM, Inc.”) was incorporated in Delaware as a holding company with the sole purpose of becoming a member and sole manager of National CineMedia, LLC (“NCM LLC”), a limited liability company owned by NCM, Inc., American Multi-Cinema, Inc. and AMC ShowPlace Theatres, Inc. (“AMC”), wholly owned subsidiaries of AMC Entertainment, Inc., Regal Cinemas, Inc. and Regal CineMedia Holdings, LLC, wholly owned subsidiaries of Regal Entertainment Group (“Regal”) and Cinemark Media, Inc. and Cinemark USA, Inc., wholly owned subsidiaries of Cinemark Holdings, Inc. (“Cinemark”).  The terms “NCM”, “the Company” or “we” shall, unless the context otherwise requires, be deemed to include the consolidated entity.  AMC, Regal and Cinemark and their affiliates are referred to in this document as “founding members”.  The Company operates the largest digital in-theatre network in North America, allowing NCM LLC to sell advertising (the “Services”) under long-term exhibitor services agreements (“ESAs”) with the founding members (approximately 21 years remaining as of October 1, 2015) and certain third-party theatre circuits (known as “network affiliates”) under long-term network affiliate agreements, which have terms from three to twenty years.

As of October 1, 2015, NCM LLC had 130,723,361 common membership units outstanding, of which 59,018,867 (45.2%) were owned by NCM, Inc., 26,409,784 (20.2%) were owned by Regal, 25,631,046 (19.6%) were owned by Cinemark and 19,663,664 (15.0%) were owned by AMC. The membership units held by the founding members are exchangeable into NCM, Inc. common stock on a one-for-one basis.

Recent Transactions

On May 5, 2014, NCM, Inc. entered into an Agreement and Plan of Merger (the “Merger Agreement”) to merge with Screenvision, LLC (“Screenvision”).  On November 3, 2014, the Department of Justice filed a lawsuit seeking to enjoin the merger.  On March 16, 2015, the Company announced the termination of the Merger Agreement and the lawsuit was dismissed.  After the Merger Agreement was terminated, NCM LLC reimbursed NCM, Inc. for certain expenses pursuant to an indemnification agreement among NCM LLC, NCM, Inc. and the founding members.  On March 17, 2015, NCM LLC paid Screenvision an approximate $26.8 million termination payment on behalf of NCM, Inc. This payment was $2 million lower than the reverse termination fee contemplated by the Merger Agreement.  During the nine months ended October 1, 2015, NCM LLC also either paid directly or reimbursed NCM, Inc. for the legal and other merger-related costs of approximately $15.0 million ($7.5 million incurred by NCM, Inc. during the year ended January 1, 2015 and approximately $7.5 million incurred by NCM LLC during the nine months ended October 1, 2015). The Company and the founding members each bore a pro rata portion of the merger termination fee and the related merger expenses based on their aggregate ownership percentages in NCM LLC.

Basis of Presentation

The Company has prepared the unaudited Condensed Consolidated Financial Statements and related notes of NCM, Inc. in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and footnote disclosures typically included in an annual report have been condensed or omitted for this quarterly report.  The balance sheet as of January 1, 2015 is derived from the audited financial statements of NCM, Inc.  Therefore, the unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s annual report on Form 10-K filed for the fiscal year ended January 1, 2015.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly in all material respects the financial position, results of operations and cash flows for all periods presented have been made.  The Company’s business is seasonal and for this and other reasons operating results for interim periods may not be indicative of the Company’s full year results or future performance. As a result of the various related party agreements discussed in Note 4— Related Party Transactions , the operating results as presented are not necessarily indicative of the results that might have occurred if all agreements were with non-related third parties.  The Company manages its business under one reportable segment: advertising.

 

9


NATIONAL CINEMEDIA, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Estimates —The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilit ies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include those related to the reserve for uncollectible accounts receivable, share-based compensation and income taxes. Actual results could differ from those estimates.

Significant Accounting Policies

The Company’s annual financial statements included in its Form 10-K filed for the fiscal year ended January 1, 2015 contain a complete discussion of the Company’s significant accounting policies. Following is additional information related to the Company’s accounting policies.